5/23/17

Investment Advisors Will Be Required To Work In Your Best Interest, But Will Trump Administration Enforce Rule?

After a nearly four month delay, the Trump administration has decided to allow the Department of Labor to move forward with a rule intended to stop investment advisors from pushing customers into products that primarily benefit the advisor. However, some question whether the administration will actually enforce this rule.

In February, President Trump used an executive order to halt implementation of the Fiduciary Duty Rule, claiming that Labor needed time to review the regulation that governs financial advisors, retirement plan sponsors, and others.

Late last night, DoL announced it would move forward with the fiduciary rule, setting an implementation date of June 9, three months later than originally scheduled.

The rule, which was finalized in April 2016 after years of back and forth between federal regulators and the banking industry, aimed to prevent advisors from gouging customers by selling them products that could benefit the advisor financially but may not be in the best interest of the individual.

Under the fiduciary rule, an advisor would be required to determine what would best suit a given customer’s needs, even if they don’t offer that product or service.

Prior to the rule, these advisors only had to offer advice based on a “suitability” standard, that requires brokers to make recommendations that are suitable based on a client’s personal situation, but not necessarily what is best for their future.

In an op-ed published in the Wall Street Journal on Monday, DoL Secretary Alexander Acosta said the Department decided to move forward with the partial rule after it “carefully considered the record in this case” and determined there was no legal basis for further postponement.

Specifically, starting on June 9, firms and their advisers must comply with conditions of the rule if they receive compensation for investment advice in a manner that would violate the prohibited transaction rules, which are designed to protect retirement investors from conflicts of interest.

These firms and advisors must comply with the “impartial conduct standards” including: giving advice that is in the “best interest” of the investor; charge no more than reasonable compensation; and make no misleading statement about investment transactions.

No Enforcement In 2017

Brokers and insurance agents, however, don’t need to comply with certain parts of the regulation until its full roll out on Jan. 1, 2018.

While the DoL outlines an implementation plan for the rule and a transition period from June 9 to Jan. 1, the agency’s guidelines [PDF] on transitionnotes that it won’t actually enforce the rule for some time.

The DoL says that it has issued a ”new temporary enforcement policy for the transition period, under which the Department will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions.”

Consumerist has reached out to the Dept. of Labor for additional information on enforcement of the Fiduciary Duty Rule.

Rule May Be Doomed

Further, Acosta cautions in his op-ed that the rule “may not align with President Trump’s deregulatory goals,” and the administration’s presumption that Americans can make their own decisions. This, essentially, leaves the door open for the rule to be repealed or further revisions.

Consumer advocates were quick to applaud the rule’s June 9 partial implementation, noting that the measure is something American’s have indicated they want.

A Consumer Reports survey released in January found that just 34% of Americans were either only slightly confident or not confident (about 31%) that banks and investment companies were acting transparently and responsibly to charge reasonable fees and protect their investments.

CFA Director of Investor Protection Barbara Roper says that Acosta’s public comments on the rule “simply parrot propaganda from the financial interests with most to gain from a return to a system that allows them to profit unfairly at their customers’ expense.”

“If Secretary Acosta truly respects the will of the people, he will stand up to the industry lobbyists who want a fiduciary standard in name only,” continues Roper, “and he will proceed with implementation of a rule that puts real teeth into the best interest standard by making it legally enforceable and by reining in practices that encourage and reward advice that is not in customers’ best interests.”